Clyde and Co have successfully represented the ADGM Registration Authority in the first public law challenge to come before the ADGM Courts. The case arose as a statutory appeal against the imposition of a regulatory fine on a company service provider for failure to have maintained a complete and up to date record of its beneficial owners in accordance with sections 2 and 3 of the Beneficial Ownership Regulations 2018 (the BOCR). In a reserved judgment delivered on 24 October 2023 the ADGM Court of First Instance (Justice William Stone) upheld the lawfulness of the Authority’s actions and dismissed a wide-ranging challenge to the steps taken by the Authority leading to the imposition of the fine, Elnaggar v Partners Limited v ADGM Registration Authority [2023] ADGMCFI 0019 (24 October 2023).

In order to succeed in the appeal, under section 25(1) of the ADGM Court Regulations, the company had to show that the Authority’s decision was either wrong in law or in excess of jurisdiction. For this purpose, as noted by Justice Stone, the company had “spread his net wide”, and the Court had the task of addressing a range of public law arguments that will be of interest to regulated entities and corporate advisors alike. These issues, and the principles and areas traversed, included the following:

  • there had to be clear evidence of legal administrative error resulting in unfairness to the regulated person before the Court would interfere; 
  • it was the primary responsibility of licensed persons to meet their regulatory obligations including in relation to the accuracy of documents filed by them. The Authority was entitled to reasonably rely on the accuracy of filings and on the declarations of licensed persons as to their compliance;
  • the Authority had lawfully applied an objective risk-based approach to its monitoring and enforcement functions. The suggestion that the company had been unfairly selected or treated unfairly was rejected;
  • the company had separate and distinct duties under the BOCR, on the one hand to maintain an internal record of beneficial owners containing all the particulars required under the BOCR, and on the other to make proper filings on the Authority’s portal. The Authority had correctly assessed the company’s compliance over the entire assessment period; 
  • in doing so the Authority had manifestly complied with natural justice and fair procedures, and the company had had ample opportunity to clarify the matters of concern to the Authority; 
  • specifically, the service by the Authority on the company of a ‘Principal Findings Report’ had satisfied the requirement under the BOCR that a person ‘charged’ with a BOCR infraction should have an opportunity to prove that it took all reasonable steps to attempt to comply with the duty in question. In this regard, the warning notice provisions of the Commercial Licensing Regulations 2015 had no application to the assessment and enforcement of contraventions of the BOCR, as had been contended for by the company. The BOCR was both a later and a more specific enactment, and as a matter of construction the procedure for the assessment of contraventions of the BOCR fell to be considered within the confines of the BOCR itself; 
  • the Authority had not applied a fixed policy, nor had it fettered its discretion. Further, the Authority had not acted in breach of any legitimate procedural expectation of the company, in respect of which the Court rejected the suggestion that the company had been led as a result of its interactions with the Authority to make certain assumptions about the procedure to be adopted; and
  • the suggestion that the Authority had acted irrationally, in the sense of Wednesbury unreasonableness (namely that no reasonable person acting reasonably could have made the decision in question), was also rejected on the basis that there was no evidence of any such unreasonableness on the evidence in the case.

The central issue for determination in Elnaggar was whether, in imposing the fine, the Authority had failed to take account of a relevant consideration (the filings separately made by the company under different provisions of the BOCR) or had given undue consideration to the erroneous record of beneficial ownership submitted by the company in response to an assessment notice, in respect of which the company had only realised its mistake after the fine had issued. In this regard, one of the striking features of the case was the company’s steadfast but mistaken belief even in the course of the appeal that it had in fact complied with its duties. This prompted the Court in the course of the hearing to observe that the parties appeared to be like ‘ships in the night’. Notwithstanding, in its judgment the Court was clearly satisfied that the Authority had carefully explained the deficiencies that the company had to address and had given the company ample opportunity to correct matters, yet despite this guidance the company had persisted in its mistaken approach to its obligations. In effect, the Authority had sought to help the errant vessel to correct its course and had acted entirely lawfully in doing so.

Experience shows that it is not often that argument is heard before international commercial courts on public law concepts of jurisdictional error and error of law, or indeed Wednesbury unreasonableness. Yet the role of international commercial courts in supervising the lawfulness of regulatory processes and decisions falling within their remit is an important incidence of their original jurisdiction, upon which market confidence in offshore regulatory regimes partly depends. The judgment of the ADGM Court of First Instance in Elnaggar is a confident first judgment by the ADGM Court in its public law remit.  

For more information, please contact our disputes resolution specialists Patrick Dillon-Malone, Keith Hutchison, Natasha Zahid or Caitlin Coady